Confusion over tax-free childcare scheme affecting its use

20th February 2020

The take-up of the Government’s Tax-Free Childcare scheme which was introduced as a replacement to childcare vouchers has been hindered by a lack of understanding around eligibility and the financial benefits of the scheme.

HM Revenue & Customs (HMRC) estimates that around 1.3 million families qualify for the scheme. However, the take-up to date has been significantly lower than anticipated.

Under Tax-Free Childcare, the Government makes a top-up payment of £2 for every £8 that a family pays into an online account, up to a maximum of £2,000 per child under the age of 12, per year. This is increased to £4,000 per child per year, for disabled children under the age of 17.

Payments from these Tax-Free Childcare accounts are then made to registered childcare providers that are signed up to the scheme, in return for their services.

HMRC recently commissioned researchers to identify and explore the reasons why eligible parents had not signed up to or used the scheme.

The research identified four key issues, with the first being a lack of awareness of the scheme among some parents, with some of those who were eligible unaware of it before participating in the research.

There was also a generally poor understanding of the scheme, including who it is aimed at, how it works and how it differs from other government support.

There were cases where parents felt other schemes were more appropriate, and some eligible parents had chosen not to sign up because they had childcare vouchers or 30 hours free childcare instead.

Overall respondents felt that the financial benefit of applying for Tax-Free Childcare is too low in particular those who only required a low number of hours of childcare per week.

The research also looked at why parents did not use an account, having set one up. Around one in five (21 per cent) of respondents said they decided not to use it after setting it up and the same proportion (21 per cent) said they had set up their account in advance of needing to make a payment.

For help and advice with tax reliefs, including Tax-Free Childcare, contact a member of our expert team today.